ASSIGNMENT :

Assignment is the transfer of the rights to receive the benefits under a contract accruing to the party to that contract. In life insurance parlance, assignment is the transfer of rights to receive benefits stated in the life insurance policy from the Policyholder to the Assignee. The benefits under an insurance policy accrue by way of survival benefits and death benefits. While death benefits accrue in every insurance policy, survival benefits typically relate to maturity benefits under an insurance policy with an underlying investment component, e.g. Endowment Policy, Money-back Policy, Unit Linked Insurance Policy etc.

The concept and procedure for Assignment is dealt with under Section 38 of the Insurance Act, 1938. The Section treats an Assignment and a Transfer at par. It lays down that a transfer or assignment of a policy of life insurance, whether with or without consideration, may be made only by an endorsement upon the policy itself or by a separate instrument, signed in either case by the transferor or by the assignor or his duly authorised agent and attested by at least one witness, specifically setting forth the fact of transfer or assignment.

In practice, a ‘space for endorsements’ is provided in the insurance policy contract where the Policyholder (Assignor) affixes the statement of assignment alongwith reasons therefor. This endorsement is required to be signed by the Policyholder and the signature should be witnessed by any person competent to contract. An assignment can be only for valid reasons.

The insurance policy can be assigned for reasons of ‘love and affection’ within the immediate family members, or for a ‘valid consideration’ to any external person or entity. A majority of insurance policy assignments are carried out towards providing the insurance policy as a collateral security towards loans taken from financial institutions. In these cases, a condition is added to the endorsement which states that on the repayment of the loan, the policy shall stand automatically re-assigned to the policyholder and the future benefits shall become payable to the policyholder. Assignment of an insurance policy to an unrelated person without a valid consideration is also viewed as a possible route for money laundering, thereby attracting enhanced scrutiny.

Under the current laws, the Insurer has the limited authority of ensuring that the assignment documents are in order and has the obligation to register the assignment. The Insurer cannot deny an assignment. An assignment is effective on the date when the assignment documents in proper order are received by the Insurer.

Upon registration of the assignment with the Insurer, the Assignee becomes the absolute owner of the benefits under the policy. Any nominations made by the Assignor (Policyholder) stands cancelled. However some insurance policies enable granting of a loan by the Insurer, in which case the Policy gets assigned to the Insurer. Under such assignments, if the policy is reassigned or if the assignment is cancelled, the nomination made earlier by the policyholder survives and the policyholder is not required to make a fresh nomination after reassignment.